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Delta blames H-E-B in bankruptcy case

The same day San Antonio-based Delta Produce LP and its affiliated company Superior Tomato-Avocado Ltd. filed for Chapter 11 bankruptcy, Delta Produce filed another suit, for $100 million in damages, against San Antonio-based retailer H.E. Butt Co.

The suit alleges monopoly coercion by a power buyer, according to the Jan. 3 filing in the U.S. Bankruptcy Court in the Western District of Texas.

“Specifically, H-E-B coerced Delta to enter into an ongoing illegal agreement or series of agreements by which Delta was prohibited from selling produce sold to H-E-B to H-E-B’s competitors even though Delta had more than enough capacity to serve H-E-B and other supermarkets.”

The plaintiffs in the case are Delta Produce LP and Atled Ltd., (Delta spelled backward) listed as co-owner of the companies’ 118,000-square-foot facility in San Antonio. According to the filing, Delta produce sold avocados, tomatoes and watermelons to H-E-B.

The suit alleges Delta Produce’s founder Bernard Jensen made a deal with H-E-B’s director of produce to agree to supply HEB exclusively. The deal continued from 1988 through 2011, wherein Delta Produce purchased tomatoes “based upon expectations of H-E-B’s needs. By 1994, H-E-B was purchasing 95% of its mature green tomatoes, roma tomatoes and cherry tomatoes from Delta.”

Delta Produce attorney Randall Pulman of Pulman, Cappuccio, Pullen & Benson LLP, San Antonio said the company seeks $100 million in damages.

“H-E-B was such a big buyer of tomatoes, avocados and other produce in San Antonio that they controlled the market on the buy side,” Pulman said.

Pulman said H-E-B’s market share in San Antonio is estimated to be anywhere from 60% to 85%, depending on how you factor it.

“They’ve done a good job of capturing market share and they’re good operators,” he said. “What they did wrong here is to use that market power to prevent their primary suppliers from diversifying. That’s a restraint of trade.”

Retail analyst David Livingston of DJL Research, Pewaukee, Wis., said H-E-B’s hold on business in San Antonio and the surrounding areas is significant. Other markets where a chain has about 50% or so of the market include Roundy’s in Milwaukee with about 50%, Publix in Miami with a little over 50% and maybe Wegmans in Rochester, N.Y., has a little over 50%.

“In much of central Texas there are basically two competitors—HEB and Walmart,” he said. “I will say it’s not uncommon to find an HEB doing over $1 million per week in sales in medium sized markets because there are really no other competitors besides Walmart.”

“If HEB does have a near monopoly, they have certainly earned it,” he said. “They are the envy of their competitors.”

As much as 80% of Delta Produce’s business was through H-E-B, according to court documents.

The deal grew to include avocados and watermelons. Over the next decade, Delta Produce said it added more than $1.75 million in facility upgrades to handle H-E-B’s growing capacity for produce, and the exclusive sales deals were reiterated numerous times.

Delta Produce alleges it was approached by H.E. Butt competitors, including Bentonville, Ark.-based Wal-Mart Stores Inc., but it was told to refuse the business or else lose H-E-B.

Delta Produce declined an offer from a prospective buyer because H-E-B’s current produce director Hugh Topper said H-E-B would cease purchasing from Delta because the prospective buyer did business with Walmart, according to the lawsuit filing.

The filing says after several attempts to get the restriction lifted, Delta Produce reached an agreement to lift the restriction with Topper in early 2008, but “by the time H-E-B lifted the selling restriction, other retailers who might have otherwise purchased form Delta had established relationships with other sellers.”

H.E. Butt issued a statement denying the claims, according to an article in the San Antonio Express-News.

The statement said, “H-E-B strongly disagrees that it is to blame for Delta’s poor performance and will vigorously contest Delta’s lawsuit. H-E-B is confident that after a full airing of the facts, Delta’s unproven assertions will be found meritless.”

H-E-B said in the statement Delta Produce couldn’t keep up with the changing market.

“Delta was a longtime supplier to H-E-B and H-E-B regrets that Delta has been unable to weather the recent economic downturn and changes taking hold in the produce marketplace.”

HEB did not return a request for comment.

Pulman said Delta Produce has about $8 million in assets and about $8 million in liabilities. The company hopes to reorganize and pay off the debts.

“If we can’t then assets will be sold and creditors should be paid,” he said. “We think there are enough physical assets, should we have to liquidate, the PACA creditors should be paid. People are interested in buying the facility.”

As of early January, three companies filed claims against Delta Produce and Superior Tomato-Avocado under the Perishable Agricultural Commodities Act: